By Sam Boughedda
JPMorgan analyst David Karnovsky moved Take-Two (NASDAQ:TTWO) interactive to Overweight with a $175 price target on Thursday.
Take-Two, which JPMorgan previously had no rating on, with the close of the Zynga acquisition, now offers a scaled portfolio of mobile games, a leading PC/console IP, and a pipeline of content set to ramp significantly, said Karnovsky. In December 2021, Take-Two was rated Neutral prior to the rating restriction.
"Shares are down 20% since the announcement of the deal on Jan 10, underperforming the S&P (-12%). On our combined company estimates—which assume TTWO only grows F21-F24 revenue at an 11% CAGR vs. guidance for 14% and excludes any long-term revenue synergies— the stock trades at ~12x our FY24E adj. EBITDA and 16x our adj. EPS, below pre-pandemic multiples of 16.5x/21.5x or EA at 14.5x/18x (P/E is net of cash)," added the analyst.
JPMorgan believes the stock reflects depressed sentiment toward mobile gaming generally, with the sector still navigating platform privacy changes, primarily Apple's Identifier for Advertisers, and comping some pandemic benefit.
"We expect these headwinds to ease in the coming quarters, and further we see the post-IDFA landscape favoring scaled operators that can leverage a large player database and UA/advertising resources. The company is also well-positioned to add to its mobile portfolio amid a less competitive environment for M&A," wrote Karnovsky.
"Execution on the pipeline and integration is a risk, but current valuation provides a degree of safety and is more than balanced by potential upside. Looking across our coverage, we note TTWO is among the few stocks offering both value and growth and with limited risk to macro factors such as inflation or recession."